The Pentagon's No. 1 defense supplier by sales is cutting jobs and holding down discretionary expenses as U.S. defense spending comes under pressure.

"Everything is going to be fine in the near term for the big defense primes," said Morgan Keegan analyst Brian Ruttenbur. "Our concern is longer term as we pull out of Iraq and Afghanistan; we've got budget crisis and cuts coming down the road."

Net earnings fell to $742 million, or $2.14 per share, for the second quarter, from $824 million, or $2.22 per share, a year earlier. Analysts had expected earnings of $1.93 per share, according to Thomson Reuters I/B/E/S.

The share count for the quarter fell more than 6 percent as a result of a share buyback program.

Sales rose 2 percent to $11.6 billion, better than the $11.4 billion expected by analysts. Sales in the aeronautics unit rose 9 percent, aided by work on initial production contracts for the F-35 Joint Strike Fighter and higher deliveries of 2003 military transport planes.

Sales also rose in the electronic systems division, but fell in the information systems and space systems units.

Lockheed, whose shares were up about 2 percent in morning trading, said last week it was offering voluntary layoffs that would be open to about 6,500 U.S. salaried workers.

In June, the company said about 1,200 workers would be cut in the space systems division and about 1,500 in aeronautics.

Lockheed is hoping for more international sales as it faces pressure to cut costs on the F-35, the Pentagon's biggest weapons program. Last year, 84 percent of Lockheed's sales were to the U.S. government.

Tanner said prospects were good for sales of the F-16 multirole fighter but that orders would need to be booked in the next six months to keep that production line going.

The U.S. government is in discussions with Iraq on a possible sale and Lockheed expects a U.S. decision on F-16 sales to Taiwan later this year, he added.

Lockheed said it now expected earnings of $7.35 to $7.55 per share from continuing operations for this year, compared with a prior view of $6.95 to $7.25 per share. It expects 2011 sales of $46 billion to $47 billion, compared with a prior forecast of $45.8 billion to $47.3 billion.

Lockheed shares were up 2 percent at $80.89 in morning trading on the New York Stock Exchange.

Reporting by Karen Jacobs; editing by John Wallace, Dave
Zimmerman and Ted Kerr